UNITED STATES
|
SECURITIES AND EXCHANGE COMMISSION
|
Washington, DC 20549
|
FORM 10-Q
(Mark One)
S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012.
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number:
0-16761
HIGHLANDS BANKSHARES, INC.
(Exact name of registrant as specified in its
charter)
West Virginia
|
55-0650793
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(IRS Employer Identification No.)
|
P.O. Box 929
3 North Main Street
Petersburg, WV 26847
(Address of Principal Executive Offices, Including
Zip Code)
304-257-4111
(Registrant’s Telephone Number, Including
Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
S
No
£
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
S
No
£
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
o
|
Accelerated Filer
o
(Do not check if a smaller reporting company)
|
Non-accelerated filer
o
|
Smaller reporting company
ý
|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
£
Yes
S
No
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock as of the latest practicable date. As of May 15, 2012: 1,336,873 shares of Common Stock, $5 Par Value
PART I.
Item 1.
Financial Statements
HIGHLANDS BANKSHARES, INC.
|
CONSOLIDATED STATEMENTS OF INCOME
|
(In Thousands of Dollars, Except Per Share Data)
|
|
|
Three Months Ended March 31
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Interest Income
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
4,882
|
|
|
$
|
5,156
|
|
Interest on federal funds sold
|
|
|
3
|
|
|
|
4
|
|
Interest on deposits in other banks
|
|
|
1
|
|
|
|
1
|
|
Interest and dividends on securities
|
|
|
160
|
|
|
|
139
|
|
Total Interest Income
|
|
|
5,046
|
|
|
|
5,300
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
796
|
|
|
|
1,161
|
|
Interest on borrowed money
|
|
|
81
|
|
|
|
108
|
|
Total Interest Expense
|
|
|
877
|
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
4,169
|
|
|
|
4,031
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
|
|
|
515
|
|
|
|
585
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Loan Losses
|
|
|
3,654
|
|
|
|
3,446
|
|
|
|
|
|
|
|
|
|
|
Non-interest Income
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
326
|
|
|
|
345
|
|
Life insurance investment income
|
|
|
68
|
|
|
|
66
|
|
Gains on securities transactions
|
|
|
1
|
|
|
|
0
|
|
Other non-interest income
|
|
|
105
|
|
|
|
83
|
|
Total Non-interest Income
|
|
|
500
|
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
Non-interest Expense
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,704
|
|
|
|
1,615
|
|
Occupancy and equipment expense
|
|
|
349
|
|
|
|
381
|
|
Data processing expense
|
|
|
311
|
|
|
|
300
|
|
Directors fees
|
|
|
86
|
|
|
|
101
|
|
Legal and professional fees
|
|
|
122
|
|
|
|
124
|
|
Office supplies, postage and freight expense
|
|
|
71
|
|
|
|
92
|
|
FDIC premiums
|
|
|
106
|
|
|
|
166
|
|
Loan and foreclosed asset expense
|
|
|
124
|
|
|
|
70
|
|
(Gains) on sale of foreclosed property
|
|
|
0
|
|
|
|
(14
|
)
|
Losses on impairment of other real estate
|
|
|
56
|
|
|
|
65
|
|
Other non-interest expense
|
|
|
192
|
|
|
|
222
|
|
Total Non-interest Expense
|
|
|
3,121
|
|
|
|
3,122
|
|
|
|
|
|
|
|
|
|
|
Income Before Provision For Income Taxes
|
|
|
1,033
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
336
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
697
|
|
|
$
|
552
|
|
|
|
|
|
|
|
|
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
0.52
|
|
|
$
|
0.41
|
|
Cash Dividends
|
|
$
|
0.00
|
|
|
$
|
0.25
|
|
Weighted Average Common Shares Outstanding
|
|
|
1,336,873
|
|
|
|
1,336,873
|
|
The accompanying notes are an integral part of these financial statements.
|
HIGHLANDS BANKSHARES, INC.
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
(In Thousands of Dollars)
|
|
|
For the three months ended March 31,
|
|
|
|
2012
(unaudited)
|
|
|
2011
(unaudited)
|
|
Net income
|
|
$
|
697
|
|
|
$
|
552
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Unrealized (gains) or losses on investment securities available for sale, net of tax of $9 and $3
|
|
|
(14
|
)
|
|
|
5
|
|
(Gain) on sale of securities, net of tax of $0 and $0 - reclassification adjustment
|
|
|
(1
|
)
|
|
|
0
|
|
Total other comprehensive income (loss)
|
|
$
|
(15
|
)
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
682
|
|
|
$
|
557
|
|
The accompanying notes are an integral part
of these financial statements
HIGHLANDS BANKSHARES, INC.
|
CONSOLIDATED BALANCE SHEETS
|
(In thousands of dollars)
|
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,000
|
|
|
$
|
9,321
|
|
Interest bearing deposits in banks
|
|
|
3,219
|
|
|
|
2,329
|
|
Federal funds sold
|
|
|
6,630
|
|
|
|
11,253
|
|
Investment securities available for sale
|
|
|
39,073
|
|
|
|
39,557
|
|
Restricted investments, at cost
|
|
|
1,669
|
|
|
|
1,741
|
|
Loans
|
|
|
311,367
|
|
|
|
313,056
|
|
Allowance for loan losses
|
|
|
(5,854
|
)
|
|
|
(6,111
|
)
|
Bank premises and equipment, net of depreciation
|
|
|
9,300
|
|
|
|
9,411
|
|
Interest receivable
|
|
|
1,535
|
|
|
|
1,513
|
|
Investment in life insurance contracts
|
|
|
7,368
|
|
|
|
7,300
|
|
Foreclosed assets, net of valuation allowance
|
|
|
7,987
|
|
|
|
7,070
|
|
Goodwill
|
|
|
1,534
|
|
|
|
1,534
|
|
Other intangible assets, net of amortization
|
|
|
613
|
|
|
|
660
|
|
Other assets
|
|
|
5,285
|
|
|
|
5,560
|
|
Total Assets
|
|
$
|
396,726
|
|
|
$
|
404,194
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
62,975
|
|
|
$
|
61,710
|
|
Interest bearing transaction and savings accounts
|
|
|
84,119
|
|
|
|
82,915
|
|
Time deposits over $100,000
|
|
|
72,930
|
|
|
|
74,112
|
|
All other time deposits
|
|
|
123,054
|
|
|
|
125,335
|
|
Total Deposits
|
|
|
343,078
|
|
|
|
344,072
|
|
|
|
|
|
|
|
|
|
|
Long term debt instruments
|
|
|
5,444
|
|
|
|
11,245
|
|
Accrued expenses and other liabilities
|
|
|
5,848
|
|
|
|
7,203
|
|
Total Liabilities
|
|
|
354,370
|
|
|
|
362,520
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common stock, $5 par value, 3,000,000 shares authorized, 1,436,874 shares issued, 1,336,873 shares outstanding
|
|
|
7,184
|
|
|
|
7,184
|
|
Surplus
|
|
|
1,662
|
|
|
|
1,662
|
|
Treasury stock (100,001 shares, at cost)
|
|
|
(3,372
|
)
|
|
|
(3,372
|
)
|
Retained earnings
|
|
|
38,652
|
|
|
|
37,955
|
|
Other accumulated comprehensive loss
|
|
|
(1,770
|
)
|
|
|
(1,755
|
)
|
Total Stockholders’ Equity
|
|
|
42,356
|
|
|
|
41,674
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
396,726
|
|
|
$
|
404,194
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
|
HIGHLANDS BANKSHARES, INC.
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
Three Months Ended March 31, 2012 and 2011
|
(In Thousands of Dollars)
(unaudited)
|
|
|
Common
Stock
|
|
|
Surplus
|
|
|
Treasury
Stock
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other Comprehensive
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010
|
|
$
|
7,184
|
|
|
$
|
1,662
|
|
|
$
|
(3,372
|
)
|
|
$
|
37,165
|
|
|
$
|
(1,271
|
)
|
|
$
|
41,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552
|
|
|
|
|
|
|
|
552
|
|
Total other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Dividends Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334
|
)
|
|
|
|
|
|
|
(334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances March 31, 2011
|
|
$
|
7,184
|
|
|
$
|
1,662
|
|
|
$
|
(3,372
|
)
|
|
$
|
37,383
|
|
|
$
|
(1,266
|
)
|
|
$
|
41,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2011
|
|
$
|
7,184
|
|
|
$
|
1,662
|
|
|
$
|
(3,372
|
)
|
|
$
|
37,955
|
|
|
$
|
(1,755
|
)
|
|
$
|
41,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
697
|
|
|
|
|
|
|
|
697
|
|
Total other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances March 31, 2012
|
|
$
|
7,184
|
|
|
$
|
1,662
|
|
|
$
|
(3,372
|
)
|
|
$
|
38,652
|
|
|
$
|
(1,770
|
)
|
|
$
|
42,356
|
|
The accompanying notes are an integral part
of these financial statements
HIGHLANDS BANKSHARES, INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In Thousands of Dollars)
|
|
|
Three Months Ended March 31
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
697
|
|
|
$
|
552
|
|
Adjustments to reconcile net income to net
|
|
|
|
|
|
|
|
|
cash provided by operating activities
|
|
|
|
|
|
|
|
|
(Gains) on securities transactions
|
|
|
(1
|
)
|
|
|
0
|
|
(Gains) on sale of foreclosed property
|
|
|
0
|
|
|
|
(14
|
)
|
Depreciation
|
|
|
179
|
|
|
|
196
|
|
Income from life insurance contracts
|
|
|
(68
|
)
|
|
|
(66
|
)
|
Net amortization of securities premiums
|
|
|
77
|
|
|
|
48
|
|
Provision for loan losses
|
|
|
515
|
|
|
|
585
|
|
Write-down on foreclosed assets
|
|
|
56
|
|
|
|
65
|
|
Amortization of intangibles
|
|
|
47
|
|
|
|
46
|
|
(Increase) decrease in interest receivable
|
|
|
(22
|
)
|
|
|
146
|
|
Decrease in other assets
|
|
|
275
|
|
|
|
157
|
|
(Decrease) increase in accrued expenses
|
|
|
(1,345
|
)
|
|
|
132
|
|
Net Cash Provided by Operating Activities
|
|
|
410
|
|
|
|
1,847
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of foreclosed assets and fixed assets
|
|
|
203
|
|
|
|
155
|
|
Proceeds from maturity of securities available for sales
|
|
|
647
|
|
|
|
1,652
|
|
Proceeds from sale of securities available for sale
|
|
|
3,236
|
|
|
|
0
|
|
Purchase of securities available for sale
|
|
|
(3,500
|
)
|
|
|
(7,073
|
)
|
Net change in other investments
|
|
|
72
|
|
|
|
94
|
|
Net change in interest bearing deposits in other banks
|
|
|
(890
|
)
|
|
|
875
|
|
Net change in federal funds sold
|
|
|
4,623
|
|
|
|
(3,255
|
)
|
Net (increase) decrease in loans
|
|
|
(259
|
)
|
|
|
2,755
|
|
Purchase of property and equipment
|
|
|
(68
|
)
|
|
|
(71
|
)
|
Net Cash Provided by (Used in) Investing Activities
|
|
|
4,064
|
|
|
|
(4,868
|
)
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Net change in time deposits
|
|
|
(3,463
|
)
|
|
|
(1,814
|
)
|
Net change in other deposit accounts
|
|
|
2,469
|
|
|
|
4,139
|
|
Repayment of long term borrowings
|
|
|
(5,801
|
)
|
|
|
(121
|
)
|
Dividends paid in cash
|
|
|
0
|
|
|
|
(334
|
)
|
Net Cash (Used in) Provided by Financing Activities
|
|
|
(6,795
|
)
|
|
|
1,870
|
|
Net (decrease) in Cash and Cash Equivalents
|
|
|
(2,321
|
)
|
|
|
(1,151
|
)
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
9,321
|
|
|
|
8,282
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
7,000
|
|
|
$
|
7,131
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
186
|
|
|
$
|
125
|
|
Cash paid for interest
|
|
$
|
935
|
|
|
$
|
1,274
|
|
Noncash Investing and Financing Activities for other real estate acquired in settlement of loans
|
|
$
|
1,176
|
|
|
$
|
883
|
|
The accompanying notes are an integral part
of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE: ACCOUNTING PRINCIPLES
The
consolidated financial statements conform to U. S. generally accepted accounting principles and to general industry practices.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting
solely of normal recurring adjustments, necessary to present fairly the financial position as of March 31, 2012 and the results
of operations for the three month periods ended March 31, 2012 and 2011.
The
results of operations for the three month periods ended March 31, 2012 and 2011 are not necessarily indicative of the results to
be expected for the full year.
The
notes included herein should be read in conjunction with the notes to financial statements included in the Company’s 2011
annual report on Form 10-K.
Certain reclassifications have been made
to prior period balances to conform to the current year’s presentation format.
NOTE TWO: LOANS
A summary of loans outstanding as of March 31, 2012 and December
31, 2011 is shown in the table below (in thousands of dollars):
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
Commercial Mortgage
|
|
$
|
138,114
|
|
|
$
|
139,374
|
|
Commercial Other
|
|
|
13,975
|
|
|
|
13,709
|
|
Consumer Mortgage
|
|
|
136,776
|
|
|
|
136,472
|
|
Consumer Other
|
|
|
22,502
|
|
|
|
23,501
|
|
|
|
$
|
311,367
|
|
|
$
|
313,056
|
|
The
following is a summary of information pertaining to impaired loans by portfolio segment at March 31, 2012 and December 31, 2011
(in thousands of dollars):
Impaired Loans
|
As of March 31, 2012
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded Investment
|
|
|
Interest
Income Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
$
|
21,312
|
|
|
$
|
21,312
|
|
|
$
|
0
|
|
|
$
|
22,668
|
|
|
$
|
304
|
|
Commercial Other
|
|
|
288
|
|
|
|
288
|
|
|
|
0
|
|
|
|
304
|
|
|
|
8
|
|
Consumer Mortgage
|
|
|
937
|
|
|
|
937
|
|
|
|
0
|
|
|
|
938
|
|
|
|
13
|
|
Consumer Other
|
|
|
67
|
|
|
|
67
|
|
|
|
0
|
|
|
|
68
|
|
|
|
1
|
|
Sub-total
|
|
$
|
22,604
|
|
|
$
|
22,604
|
|
|
$
|
0
|
|
|
$
|
23,978
|
|
|
$
|
326
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
|
8,620
|
|
|
|
8,620
|
|
|
|
913
|
|
|
|
8,636
|
|
|
|
57
|
|
Commercial Other
|
|
|
71
|
|
|
|
71
|
|
|
|
71
|
|
|
|
73
|
|
|
|
1
|
|
Consumer Mortgage
|
|
|
806
|
|
|
|
806
|
|
|
|
320
|
|
|
|
807
|
|
|
|
10
|
|
Consumer Other
|
|
|
27
|
|
|
|
27
|
|
|
|
15
|
|
|
|
27
|
|
|
|
1
|
|
Sub-total
|
|
$
|
9,524
|
|
|
$
|
9,524
|
|
|
$
|
1,319
|
|
|
$
|
9,543
|
|
|
$
|
69
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
|
29,932
|
|
|
|
29,932
|
|
|
|
913
|
|
|
|
31,304
|
|
|
|
361
|
|
Commercial Other
|
|
|
359
|
|
|
|
359
|
|
|
|
71
|
|
|
|
377
|
|
|
|
9
|
|
Consumer Mortgage
|
|
|
1,743
|
|
|
|
1,743
|
|
|
|
320
|
|
|
|
1,745
|
|
|
|
23
|
|
Consumer Other
|
|
|
94
|
|
|
|
94
|
|
|
|
15
|
|
|
|
95
|
|
|
|
2
|
|
Total
|
|
$
|
32,128
|
|
|
$
|
32,128
|
|
|
$
|
1,319
|
|
|
$
|
33,521
|
|
|
$
|
395
|
|
Impaired Loans
|
As of December 31, 2011
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
$
|
21,160
|
|
|
$
|
21,160
|
|
|
$
|
0
|
|
|
$
|
23,065
|
|
|
$
|
1,287
|
|
Commercial Other
|
|
|
261
|
|
|
|
261
|
|
|
|
0
|
|
|
|
300
|
|
|
|
23
|
|
Consumer Mortgage
|
|
|
930
|
|
|
|
930
|
|
|
|
0
|
|
|
|
940
|
|
|
|
49
|
|
Sub-total
|
|
$
|
22,351
|
|
|
$
|
22,351
|
|
|
$
|
0
|
|
|
$
|
24,305
|
|
|
$
|
1,359
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
|
5,383
|
|
|
|
5,383
|
|
|
|
1,018
|
|
|
|
5,469
|
|
|
|
125
|
|
Commercial Other
|
|
|
430
|
|
|
|
430
|
|
|
|
167
|
|
|
|
475
|
|
|
|
23
|
|
Consumer Mortgage
|
|
|
1,036
|
|
|
|
1,036
|
|
|
|
328
|
|
|
|
1,036
|
|
|
|
42
|
|
Sub-total
|
|
$
|
6,849
|
|
|
$
|
6,849
|
|
|
$
|
1,513
|
|
|
$
|
6,980
|
|
|
$
|
190
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
|
26,543
|
|
|
|
26,543
|
|
|
|
1,018
|
|
|
|
28,534
|
|
|
|
1,412
|
|
Commercial Other
|
|
|
691
|
|
|
|
691
|
|
|
|
167
|
|
|
|
775
|
|
|
|
46
|
|
Consumer Mortgage
|
|
|
1,966
|
|
|
|
1,966
|
|
|
|
328
|
|
|
|
1,976
|
|
|
|
91
|
|
Total
|
|
$
|
29,200
|
|
|
$
|
29,200
|
|
|
$
|
1,513
|
|
|
$
|
31,285
|
|
|
$
|
1,549
|
|
The average recorded investment in impaired
loans was $30,957,000 and $33,521,000 for the three months ended March 31, 2011 and 2012, respectively. The interest income
recognized on impaired loans was $309,000 and $393,000 for the three months ended March 31, 2011 and 2012, respectively.
No loans were identified as impaired with
potential loss as of March 31, 2012 or December 31, 2011 for which an allowance was not provided. The table above includes troubled
debt restructurings (TDR) of $18,063,000 and $14,152,000 as of March 31, 2012 and December 31, 2011, respectively. Loans are identified
as TDR if concessions are made related to the terms of the loan beyond regular lending practices in response to a borrower’s
financial condition. Restructured loans performing in accordance with modified terms consist of twenty commercial mortgages and
nineteen consumer mortgages. Restructured loans not performing in accordance with modified terms consist of four commercial mortgages
and two consumer mortgages. These loans were balloon renewals or restructurings of borrowers experiencing financial difficulties
at either current market rates for borrowers not experiencing financial difficulties, were modified to reduce interest rates, or
provide for interest-only payment periods. These loans did not have any additional commitments to extend credit at March 31, 2012.
Balances of non-accrual loans at March
31, 2012 and December 31, 2011 are shown below (in thousands of dollars):
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
Loans on non-accrual status
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
$
|
4,644
|
|
|
$
|
4,152
|
|
Commercial Other
|
|
|
0
|
|
|
|
295
|
|
Consumer Mortgage
|
|
|
2,538
|
|
|
|
3,526
|
|
Consumer Other
|
|
|
66
|
|
|
|
48
|
|
Total non-accrual loans
|
|
$
|
7,248
|
|
|
$
|
8,021
|
|
Certain loans identified as impaired are
placed into non-accrual status, based upon the loan’s performance compared with contractual terms. Not all loans identified
as impaired are placed into non-accrual status. The interest on loans identified as impaired and placed into non-accrual status
that was not recognized as income throughout the year (foregone interest) was $114,000 for the three month period ended March 31,
2012.
The following table presents the contractual
aging of the recorded investment in past due loans by class as of March 31, 2012 and December 31, 2011 (in thousands of dollars):
Age Analysis of Past Due Financing Receivables
|
As of March 31, 2012
|
|
|
30-59
Days
Past
Due
|
|
|
60-89
Days Past
Due
|
|
|
Greater
Than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Financing
Receivables
|
|
|
Recorded
Investment
> 90 Days
and
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial - Mortgage
|
|
$
|
4,703
|
|
|
$
|
898
|
|
|
$
|
4,731
|
|
|
$
|
10,332
|
|
|
$
|
127,782
|
|
|
$
|
138,114
|
|
|
$
|
309
|
|
Commercial -Other
|
|
|
285
|
|
|
|
96
|
|
|
|
18
|
|
|
|
399
|
|
|
|
13,576
|
|
|
|
13,975
|
|
|
|
18
|
|
Consumer - Mortgage
|
|
|
3,994
|
|
|
|
1,060
|
|
|
|
1,683
|
|
|
|
6,737
|
|
|
|
130,039
|
|
|
|
136,776
|
|
|
|
23
|
|
Consumer - Other
|
|
|
597
|
|
|
|
119
|
|
|
|
70
|
|
|
|
786
|
|
|
|
21,716
|
|
|
|
22,502
|
|
|
|
47
|
|
Total
|
|
$
|
9,579
|
|
|
$
|
2,173
|
|
|
$
|
6,502
|
|
|
$
|
18,254
|
|
|
$
|
293,113
|
|
|
$
|
311,367
|
|
|
$
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age Analysis of Past Due Financing Receivables
|
As of December 31, 2011
|
|
|
30-59
Days
Past
Due
|
|
|
60-89
Days Past
Due
|
|
|
Greater
Than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Financing
Receivables
|
|
|
Recorded
Investment > 90 Days
and
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial - Mortgage
|
|
$
|
3,541
|
|
|
$
|
1,490
|
|
|
$
|
3,599
|
|
|
$
|
8,630
|
|
|
$
|
130,744
|
|
|
$
|
139,374
|
|
|
$
|
212
|
|
Commercial -Other
|
|
|
313
|
|
|
|
27
|
|
|
|
297
|
|
|
|
637
|
|
|
|
13,072
|
|
|
|
13,709
|
|
|
|
11
|
|
Consumer - Mortgage
|
|
|
4,317
|
|
|
|
2,770
|
|
|
|
3,120
|
|
|
|
10,207
|
|
|
|
126,265
|
|
|
|
136,472
|
|
|
|
269
|
|
Consumer - Other
|
|
|
738
|
|
|
|
300
|
|
|
|
65
|
|
|
|
1,103
|
|
|
|
22,398
|
|
|
|
23,501
|
|
|
|
44
|
|
Total
|
|
$
|
8,909
|
|
|
$
|
4,587
|
|
|
$
|
7,081
|
|
|
$
|
20,577
|
|
|
$
|
292,479
|
|
|
$
|
313,056
|
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings:
Impaired loans also include loans the
Banks may elect to formally restructure due to the weakening credit status of a borrower such that the restructuring may facilitate
a repayment plan that minimizes the potential losses, if any, that the Banks may have to otherwise incur. These loans are classified
as impaired loans and, if on nonaccrual status as of the date of the restructuring, the loans are included in the nonaccrual loan
balances noted above. Not included in nonperforming loans are loans that have been restructured that were performing in accordance
with modified terms as of March 31, 2012.
The following tables present the Company’s
loans restructured during the three month reporting period ending March 31, 2012 considered troubled debt by loan type (in thousands
of dollars except number of contracts):
|
|
Troubled Debt Restructurings
|
|
|
|
For the Three Month Period Ended March 31, 2012
|
|
|
|
Number of
Contacts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
Allowance
associated with
TDR's
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
|
4
|
|
|
$
|
1,916
|
|
|
$
|
1,916
|
|
|
$
|
55
|
|
Commercial Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Consumer Mortgage
|
|
|
1
|
|
|
|
113
|
|
|
|
114
|
|
|
|
35
|
|
Consumer Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
|
5
|
|
|
$
|
2,029
|
|
|
$
|
2,030
|
|
|
$
|
89
|
|
The following table presents the Company’s
loans restructured during the prior twelve months which defaulted during the three month reporting period ended March 31, 2012:
|
|
Defaulted Troubled Debt Restructurings
|
|
|
|
For the Twelve Month Period Ended March 31, 2012
|
|
|
|
Number of
Contacts
|
|
|
Recorded
Investment
|
|
|
Allowance
associated with
Defaulted TDR's
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
|
4
|
|
|
$
|
1,626
|
|
|
$
|
200
|
|
Commercial Other
|
|
|
1
|
|
|
|
98
|
|
|
|
0
|
|
Consumer Mortgage
|
|
|
2
|
|
|
|
478
|
|
|
|
62
|
|
Consumer Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
|
7
|
|
|
$
|
2,202
|
|
|
$
|
262
|
|
NOTE THREE: ALLOWANCE FOR
LOAN LOSSES
A
summary of the transactions in the allowance for loan losses for the three month period ended March 31, 2012 and the year ended
December 31, 2011 is shown below (in thousands of dollars):
Allowance for Credit Losses and Recorded Investment in Financing Receivables
|
For the Three Months Ended March 31, 2012
|
|
|
Commercial
Mortgage
|
|
|
Commercial
Other
|
|
|
Consumer
Mortgage
|
|
|
Consumer
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance 12/31/2011
|
|
$
|
2,898
|
|
|
$
|
465
|
|
|
$
|
1,959
|
|
|
$
|
428
|
|
|
$
|
361
|
|
|
$
|
6,111
|
|
Charge-offs
|
|
|
305
|
|
|
|
245
|
|
|
|
292
|
|
|
|
51
|
|
|
|
0
|
|
|
|
893
|
|
Recoveries
|
|
|
0
|
|
|
|
13
|
|
|
|
0
|
|
|
|
108
|
|
|
|
0
|
|
|
|
121
|
|
Provision
|
|
|
231
|
|
|
|
154
|
|
|
|
190
|
|
|
|
(60
|
)
|
|
|
0
|
|
|
|
515
|
|
Ending Balance 3/31/2012
|
|
$
|
2,824
|
|
|
$
|
387
|
|
|
$
|
1,857
|
|
|
$
|
425
|
|
|
$
|
361
|
|
|
$
|
5,854
|
|
Ending Balance: individually evaluated for impairment
|
|
|
913
|
|
|
|
71
|
|
|
|
320
|
|
|
|
15
|
|
|
|
0
|
|
|
|
1,319
|
|
Ending Balance: collectively evaluated for impairment
|
|
|
1,911
|
|
|
|
316
|
|
|
|
1,537
|
|
|
|
410
|
|
|
|
361
|
|
|
|
4,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
138,114
|
|
|
|
13,975
|
|
|
|
136,776
|
|
|
|
22,502
|
|
|
|
0
|
|
|
|
311,367
|
|
Ending Balance: individually evaluated for impairment
|
|
|
29,932
|
|
|
|
359
|
|
|
|
1,743
|
|
|
|
94
|
|
|
|
0
|
|
|
|
32,128
|
|
Ending Balance: collectively evaluated for impairment
|
|
$
|
108,182
|
|
|
$
|
13,616
|
|
|
$
|
135,033
|
|
|
$
|
22,408
|
|
|
$
|
0
|
|
|
$
|
279,239
|
|
Allowance for Credit Losses and Recorded Investment in Financing Receivables
|
For the Year Ended December 31, 2011
|
|
|
Commercial
Mortgage
|
|
|
Commercial
Other
|
|
|
Consumer
Mortgage
|
|
|
Consumer
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance 12/31/2010
|
|
$
|
1,345
|
|
|
$
|
887
|
|
|
$
|
1,662
|
|
|
$
|
968
|
|
|
$
|
545
|
|
|
$]
|
5,407
|
|
Charge-offs
|
|
|
2,322
|
|
|
|
163
|
|
|
|
565
|
|
|
|
372
|
|
|
|
0
|
|
|
|
3,422
|
|
Recoveries
|
|
|
129
|
|
|
|
137
|
|
|
|
15
|
|
|
|
221
|
|
|
|
0
|
|
|
|
502
|
|
Provision
|
|
|
3,746
|
|
|
|
(396
|
)
|
|
|
847
|
|
|
|
(389
|
)
|
|
|
(184
|
)
|
|
|
3,624
|
|
Ending Balance 12/31/2011
|
|
$
|
2,898
|
|
|
$
|
465
|
|
|
$
|
1,959
|
|
|
$
|
428
|
|
|
$
|
361
|
|
|
$
|
6,111
|
|
Ending Balance: individually evaluated for impairment
|
|
|
1,018
|
|
|
|
167
|
|
|
|
328
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,513
|
|
Ending Balance: collectively evaluated for impairment
|
|
|
1,880
|
|
|
|
298
|
|
|
|
1,631
|
|
|
|
428
|
|
|
|
361
|
|
|
|
4,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
139,374
|
|
|
|
13,709
|
|
|
|
136,472
|
|
|
|
23,501
|
|
|
|
0
|
|
|
|
313,056
|
|
Ending Balance: individually evaluated for impairment
|
|
|
26,543
|
|
|
|
691
|
|
|
|
1,966
|
|
|
|
0
|
|
|
|
0
|
|
|
|
29,200
|
|
Ending Balance: collectively evaluated for impairment
|
|
$
|
112,831
|
|
|
$
|
13,018
|
|
|
$
|
134,506
|
|
|
$
|
23,501
|
|
|
$
|
0
|
|
|
$
|
283,856
|
|
The following table presents the company’s loans by internally
assigned grades and by loan type (in thousands of dollars).
Credit Quality Indicators
|
As of March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Risk Profile by Internally Assigned Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Consumer
|
|
|
Total
|
|
|
|
Mortgage
|
|
|
Other
|
|
|
Mortgage
|
|
|
Other
|
|
|
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excellent
|
|
$
|
775
|
|
|
$
|
1,489
|
|
|
$
|
2,365
|
|
|
$
|
3,127
|
|
|
$
|
7,756
|
|
Very Good
|
|
|
15,042
|
|
|
|
677
|
|
|
|
27,370
|
|
|
|
3,846
|
|
|
|
46,935
|
|
Pass
|
|
|
69,110
|
|
|
|
10,363
|
|
|
|
90,142
|
|
|
|
13,855
|
|
|
|
183,470
|
|
Pass-Watch
|
|
|
7,833
|
|
|
|
58
|
|
|
|
1,265
|
|
|
|
107
|
|
|
|
9,263
|
|
Special Mention
|
|
|
14,504
|
|
|
|
948
|
|
|
|
6,185
|
|
|
|
1,010
|
|
|
|
22,647
|
|
Substandard
|
|
|
30,850
|
|
|
|
440
|
|
|
|
9,107
|
|
|
|
557
|
|
|
|
40,954
|
|
Doubtful
|
|
|
0
|
|
|
|
0
|
|
|
|
342
|
|
|
|
0
|
|
|
|
342
|
|
Loss
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
138,114
|
|
|
$
|
13,975
|
|
|
$
|
136,776
|
|
|
$
|
22,502
|
|
|
$
|
311,367
|
|
Credit Quality Indicators
|
As of December 31, 2011
|
|
Credit Risk Profile by Internally Assigned Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Commercial
|
|
Consumer
|
|
Consumer
|
|
Total
|
|
|
Mortgage
|
|
Other
|
|
Mortgage
|
|
Other
|
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excellent
|
|
$
|
732
|
|
|
$
|
1,400
|
|
|
$
|
2,437
|
|
|
$
|
2,740
|
|
|
$
|
7,309
|
|
Very Good
|
|
|
14,049
|
|
|
|
607
|
|
|
|
28,026
|
|
|
|
4,128
|
|
|
|
46,810
|
|
Pass
|
|
|
70,462
|
|
|
|
9,693
|
|
|
|
88,752
|
|
|
|
14,942
|
|
|
|
183,849
|
|
Pass-Watch
|
|
|
12,050
|
|
|
|
117
|
|
|
|
1,106
|
|
|
|
104
|
|
|
|
13,377
|
|
Special Mention
|
|
|
13,887
|
|
|
|
1,107
|
|
|
|
5,449
|
|
|
|
1,016
|
|
|
|
21,459
|
|
Substandard
|
|
|
28,161
|
|
|
|
785
|
|
|
|
9,849
|
|
|
|
571
|
|
|
|
39,366
|
|
Doubtful
|
|
|
33
|
|
|
|
0
|
|
|
|
853
|
|
|
|
0
|
|
|
|
886
|
|
Loss
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
139,374
|
|
|
$
|
13,709
|
|
|
$
|
136,472
|
|
|
$
|
23,501
|
|
|
$
|
313,056
|
|
Loans classified as “special mention”
have potential weaknesses that deserve management’s close attention. Loans classified as “substandard” have been
determined to be inadequately protected by the current collateral pledged, if any, or the cash flow and/or the net worth of the
borrower. “Doubtful” loans have all the weaknesses inherent in substandard loans, with the added characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Loans classified as “loss” are loans with expected loss of the entire principal balance.
The loan may be carried in this classified status if circumstances indicate a remote possibility that the amount will be repaid,
however, the principal balance is included in the impairment calculation and carried in the allowance for loan losses. Loans not
categorized as special mention, substandard, or doubtful are classified as “pass”, “very good” or “excellent”
loans and are considered to exhibit acceptable risk. Additionally, the Company classifies certain loans as “pass-watch”
loans. This category includes satisfactory borrowing relationships that require close monitoring because of complexity, information
deficiencies, or emerging signs of weakness.
NOTE FOUR: INVESTMENT IN INSURANCE
CONTRACTS
Investment in insurance contracts consist
of single premium insurance contracts which have the dual purposes of providing a rate of return to the Company which approximately
equals the Company’s average cost of funds and of providing life insurance and retirement benefits to certain executives.
NOTE FIVE: SECURITIES AND
RESTRICTED INVESTMENTS
The Company’s securities portfolio
serves several purposes. Portions of the portfolio secure certain public and trust deposits while the remaining portions are held
as investments or used to assist the Company in liquidity and asset/liability management.
The amortized cost and market value of
securities as of March 31, 2012 and December 31, 2011 is shown in the table below (in thousands of dollars). All of the securities
on the Company’s balance sheet are classified as available for sale.
|
|
Available For Sale Securities
|
|
|
|
As of March 31, 2012
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and Agencies
|
|
$
|
24,156
|
|
|
$
|
157
|
|
|
$
|
7
|
|
|
$
|
24,306
|
|
Mortgage backed securities
|
|
|
4,076
|
|
|
|
156
|
|
|
|
0
|
|
|
|
4,232
|
|
Collateralized mortgage obligations
|
|
|
3,134
|
|
|
|
30
|
|
|
|
5
|
|
|
|
3,159
|
|
States and municipalities
|
|
|
2,636
|
|
|
|
64
|
|
|
|
0
|
|
|
|
2,700
|
|
Certificates of deposit
|
|
|
4,665
|
|
|
|
14
|
|
|
|
3
|
|
|
|
4,676
|
|
Total Available For Sale Securities
|
|
$
|
38,667
|
|
|
$
|
421
|
|
|
$
|
15
|
|
|
$
|
39,073
|
|
|
|
Available For Sale Securities
|
|
|
|
As of December 31, 2011
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and Agencies
|
|
$
|
21,741
|
|
|
$
|
195
|
|
|
$
|
4
|
|
|
$
|
21,932
|
|
Mortgage backed securities
|
|
|
5,456
|
|
|
|
151
|
|
|
|
3
|
|
|
|
5,604
|
|
Collateralized mortgage obligations
|
|
|
3,387
|
|
|
|
37
|
|
|
|
11
|
|
|
|
3,413
|
|
States and municipalities
|
|
|
2,642
|
|
|
|
56
|
|
|
|
0
|
|
|
|
2,698
|
|
Certificates of deposit
|
|
|
5,901
|
|
|
|
15
|
|
|
|
6
|
|
|
|
5,910
|
|
Total Available For Sale Securities
|
|
$
|
39,127
|
|
|
$
|
454
|
|
|
$
|
24
|
|
|
$
|
39,557
|
|
Information pertaining to securities with
gross unrealized losses at March 31, 2012 and December 31, 2011, aggregated by investment category and length of time that individual
securities have been in a continuous loss position is shown in the table below (in thousands of dollars):
As of March 31, 2012
|
|
Total
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and Agencies
|
|
$
|
1,493
|
|
|
$
|
(7
|
)
|
|
$
|
1,493
|
|
|
$
|
(7
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
Mortgage backed securities
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Collateralized mortgage obligations
|
|
|
840
|
|
|
|
(5
|
)
|
|
|
840
|
|
|
|
(5
|
)
|
|
|
0
|
|
|
|
0
|
|
Certificates of deposit
|
|
|
946
|
|
|
|
(3
|
)
|
|
|
946
|
|
|
|
(3
|
)
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
3,279
|
|
|
$
|
(15
|
)
|
|
$
|
3,279
|
|
|
$
|
(15
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
As of December 31, 2011
|
|
Total
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and Agencies
|
|
$
|
2,494
|
|
|
$
|
(4
|
)
|
|
$
|
2,494
|
|
|
$
|
(4
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
Mortgage backed securities
|
|
|
1,007
|
|
|
|
(3
|
)
|
|
|
1,007
|
|
|
|
(3
|
)
|
|
|
0
|
|
|
|
0
|
|
Collateralized mortgage obligations
|
|
|
904
|
|
|
|
(11
|
)
|
|
|
904
|
|
|
|
(11
|
)
|
|
|
0
|
|
|
|
0
|
|
Certificates of deposit
|
|
|
943
|
|
|
|
(6
|
)
|
|
|
943
|
|
|
|
(6
|
)
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
5,348
|
|
|
$
|
(24
|
)
|
|
$
|
5,348
|
|
|
$
|
(24
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
Securities are classified as available
for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported
separately in shareholders’ equity, net of tax. Interest income includes net amortization of purchase premiums
and discounts. Realized gains and losses on sales are determined using the amortized cost of the specific security sold. Securities
are written down to fair value when a decline in fair value is considered other-than-temporary. In estimating other-than-temporary
impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain
its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Restricted investments consist of investments
in the Federal Home Loan Bank, the Federal Reserve Bank and West Virginia Bankers’ Title Insurance Company. Restricted investments
are carried at face value and the level of investment is dictated by the level of participation with each institution. Amounts
are restricted as to transferability. Investments in the Federal Home Loan Bank act as collateral against the outstanding borrowings
from that institution.
NOTE SIX: EARNINGS PER SHARE
Earnings per share represent income available
to common stockholders divided by the weighted average number of common shares outstanding during the period. During 2012 and 2011,
there were no changes to the outstanding shares of common stock. The Company does not offer a stock option program to its employees.
NOTE SEVEN: DEBT INSTRUMENTS
The Company has borrowed money from the
Federal Home Loan Bank of Pittsburgh (FHLB). This debt consists of both borrowings with terms of maturities of nine months or greater
and also certain debts with maturities of thirty days or less.
The borrowings with long term maturities
may have either single payment maturities or amortize. The interest rates on the various long term borrowings at March 31, 2012
range from 1.68% to 5.80%. The weighted average interest rate on the borrowings at March 31, 2012 was 3.73%.
In addition to utilization of the FHLB
for borrowings of long term debt, the Company also can utilize the FHLB for overnight and other short term borrowings. At March
31, 2012 and December 31, 2011, the Company had no overnight or other short term borrowings.
NOTE EIGHT: INTANGIBLE ASSETS
The Company’s balance sheet contains
several components of intangible assets. At March 31, 2012, the total balance of intangible assets was comprised of Goodwill and
Core Deposit Intangible Assets acquired as a result of the acquisition of other banks and also an intangible asset related to the
purchased naming rights for a performing arts center located within the Company’s primary business area. The Company performs
an impairment test on an annual basis for goodwill. No impairment has been recorded to date. Other intangible assets are amortized
based upon the estimated economic benefits received.
NOTE NINE: EMPLOYEE BENEFITS
The Company's two subsidiary banks each
have separate retirement and profit sharing plans which cover substantially all full time employees at each bank.
Capon Valley Bank has a defined contribution
pension plan with 401(k) features that is funded with discretionary contributions by the Bank. The bank matches, on a limited basis,
the contributions of the employees. Investment of employee balances is done through the direction of each employee. Employer contributions
are vested over a six year period.
The
Grant County Bank is a member of the West Virginia Bankers' Association Retirement Plan. Benefits under the plan are based on compensation
and years of service with 100% vesting after seven years of service.
The Bank has recognized a liability of $1,510,000 at
March 31, 2012 for the unfunded portion of the plan. T
he following table provides the components
of the net periodic benefit cost for the plan for the three month periods ended March 31, 2012 and 2011 (in thousands of dollars):
|
|
Three Months ending
|
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Service cost
|
|
$
|
48
|
|
|
$
|
51
|
|
Interest cost
|
|
|
85
|
|
|
|
81
|
|
Expected return on plan assets
|
|
|
(114
|
)
|
|
|
(88
|
)
|
Recognized net actuarial loss
|
|
|
52
|
|
|
|
38
|
|
Net periodic expense
|
|
$
|
71
|
|
|
$
|
82
|
|
NOTE
TEN: FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurements and Disclosures (previously SFAS
No. 157, Fair Value Measurements), defines fair value, establishes a framework for measuring fair value, establishes a three-level
valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. The three levels are defined as follows:
|
·
|
Level One:
Inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
·
|
Level Two
: I
nputs to the valuation methodology
include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument.
|
|
·
|
Level Three
: Inputs to the valuation methodology are unobservable and significant to the
fair value measurement.
|
Following is a description of the valuation methodologies used for
instruments measured at fair value on the Company’s balance sheet, as well as the general classification of such instruments
pursuant to the valuation hierarchy:
Securities
Where quoted prices are available in an
active market, securities are classified within level 1 of the valuation hierarchy. Level 1 securities would include highly liquid
government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are
estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities
would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain
corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs
to the valuation, securities are classified within level 3 of the valuation hierarchy. Currently, all of the Company’s securities
are considered to be Level 2 securities.
Impaired Loans
The fair value measurement guidance applies
to loans measured for impairment using the practical expedients permitted by authoritative accounting guidance, including impaired
loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is
collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals
or independent valuation which is then adjusted for the estimated cost related to liquidation of the collateral. At March 31, 2012,
the Company had impaired loans with an unpaid principal balance of $32,128,000 of which $9,524,000 required an allowance of $1,319,000.
(see Note Two).
Other Real Estate Owned
Certain assets such as other real estate
owned (OREO) are measured at fair value. Real estate acquired through foreclosure is recorded at an estimated fair value less cost
to sell. At or near the time of foreclosure, a real estate appraisal is obtained on the properties. In the event that a sales agreement
is in place at the time of valuation, the fair value of the collateral is determined to be the agreed-upon sale price, net of anticipated
selling costs (Level 1). In the absence of a sales agreement, the real estate is then valued at the lesser of the appraised value,
net of anticipated selling costs, or the loan balance, including interest receivable, at the time of foreclosure less an estimate
of costs to sell the property. Appraised values are typically determined utilizing an income or market valuation approach based
on an appraisal conducted by an independent, licensed appraiser (Level 2). If the acquired property is a house or building in the
process of construction or if an appraisal of the real estate property is over twelve months old, the fair value is considered
Level 3. The estimate of costs to sell the property is based on historical transactions of similar holdings.
The Company, at March 31, 2012 and December 31, 2011 had no liabilities
subject to fair value reporting requirements. The table below summarizes assets at March 31, 2012 and December 31, 2011 measured
at fair value on a recurring basis (in thousands of dollars):
March 31, 2012
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair Value
Measurements
|
|
U.S. Treasuries and Agencies
|
|
$
|
0
|
|
|
$
|
24,306
|
|
|
$
|
0
|
|
|
$
|
24,306
|
|
Mortgage backed securities
|
|
|
0
|
|
|
|
4,232
|
|
|
|
0
|
|
|
|
4,232
|
|
Collateralized mortgage obligations
|
|
|
0
|
|
|
|
3,159
|
|
|
|
0
|
|
|
|
3,159
|
|
States and municipalities
|
|
|
0
|
|
|
|
2,700
|
|
|
|
0
|
|
|
|
2,700
|
|
Certificates of deposit
|
|
|
0
|
|
|
|
4,676
|
|
|
|
0
|
|
|
|
4,676
|
|
Total Available For Sale Securities
|
|
$
|
0
|
|
|
$
|
39,073
|
|
|
$
|
0
|
|
|
$
|
39,073
|
|
December 31, 2011
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair Value
Measurements
|
|
U.S. Treasuries and Agencies
|
|
$
|
0
|
|
|
$
|
21,932
|
|
|
$
|
0
|
|
|
$
|
21,932
|
|
Mortgage backed securities
|
|
|
0
|
|
|
|
5,604
|
|
|
|
0
|
|
|
|
5,604
|
|
Collateralized mortgage obligations
|
|
|
0
|
|
|
|
3,413
|
|
|
|
0
|
|
|
|
3,413
|
|
States and municipalities
|
|
|
0
|
|
|
|
2,698
|
|
|
|
0
|
|
|
|
2,698
|
|
Certificates of deposit
|
|
|
0
|
|
|
|
5,910
|
|
|
|
0
|
|
|
|
5,910
|
|
Total Available For Sale Securities
|
|
$
|
0
|
|
|
$
|
39,557
|
|
|
$
|
0
|
|
|
$
|
39,557
|
|
The table below summarizes assets at March 31, 2012 and December
31, 2011, measured at fair value on a non recurring basis (in thousands of dollars):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair Value
Measurements
|
|
|
Three Months Ended
March 31, 2012
Total gains/(losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
0
|
|
|
$
|
6,954
|
|
|
$
|
1,033
|
|
|
$
|
7,987
|
|
|
$
|
(56
|
)
|
Impaired Loans
|
|
|
0
|
|
|
|
6,437
|
|
|
|
1,768
|
|
|
|
8,205
|
|
|
|
0
|
|
Total
|
|
$
|
0
|
|
|
$
|
13,391
|
|
|
$
|
2,801
|
|
|
$
|
16,192
|
|
|
$
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair Value
Measurements
|
|
|
Twelve Months Ended
December 31, 2011
Total Gains/(Losses)
|
|
Other real estate owned
|
|
$
|
0
|
|
|
$
|
5,862
|
|
|
$
|
1,208
|
|
|
$
|
7,070
|
|
|
$
|
(912
|
)
|
Impaired Loans
|
|
|
0
|
|
|
|
4,771
|
|
|
|
565
|
|
|
|
5,336
|
|
|
|
0
|
|
Total
|
|
$
|
0
|
|
|
$
|
10,633
|
|
|
$
|
1,773
|
|
|
$
|
12,406
|
|
|
$
|
(912
|
)
|
The information above discusses financial
instruments carried on the Company’s balance sheet at fair value. Other financial instruments on the Company’s balance
sheet, while not carried at fair value, do have fair values which may differ from the carrying value. GAAP requires disclosure
relating to these fair values. The following information shows the carrying values and estimated fair values of financial instruments
and discusses the methods and assumptions used in determining these fair values.
The fair value of the Company's assets
and liabilities is influenced heavily by market conditions. Fair value applies to both assets and liabilities, either on or off
the balance sheet. Fair value is defined as the amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The methods and assumptions detailed below
were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash, Due from Banks and Money Market
Investments
The carrying amount of cash, due from bank
balances, interest bearing deposits and federal funds sold is a reasonable estimate of fair value.
Securities
Fair values of securities are based on quoted
market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market
prices for similar securities.
Restricted Investments
The carrying amount of restricted investments
is a reasonable estimate of fair value.
Loans
The fair value of loans is estimated by discounting
the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities, taking into consideration the credit risk in various loan categories.
Deposits
The fair value of demand, interest checking,
regular savings and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed
maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.
Long Term Debt
The fair value of fixed rate loans is estimated
using the rates currently offered by the Federal Home Loan Bank for indebtedness with similar maturities.
Short Term Debt
The fair value of short-term variable rate
debt is deemed to be equal to the carrying value.
Interest Payable and Receivable
The carrying value of amounts of interest receivable
and payable is a reasonable estimate of fair value.
Life Insurance
The carrying amount of life insurance contracts
is assumed to be a reasonable fair value. Life insurance contracts are carried on the balance sheet at their redemption value as
of March 31, 2012. This redemption value is based on existing market conditions and therefore represents the fair value
of the contract.
Off-Balance-Sheet Items
The carrying amount and estimated fair value
of off-balance-sheet items were not material at March 31, 2012 or December 31, 2011.
The carrying amount and estimated fair values
of financial instruments as of March 31, 2012 and December 31, 2011 are shown in the table below (in thousands of dollars):
|
|
Fair Value Measurements at March 31, 2012 using
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
|
|
|
Significant
|
|
|
|
|
for Identical
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Balance
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,000
|
|
|
|
|
|
|
|
|
|
$
|
7,000
|
|
Interest bearing deposits
|
|
|
3,219
|
|
|
|
|
|
|
|
|
|
|
3,219
|
|
Federal funds sold
|
|
|
6,630
|
|
|
|
|
|
|
|
|
|
|
6,630
|
|
Securities available for sale
|
|
|
|
|
|
|
39,073
|
|
|
|
|
|
|
39,073
|
|
Restricted investments
|
|
|
|
|
|
|
1,669
|
|
|
|
|
|
|
1,669
|
|
Loans, net
|
|
|
|
|
|
|
304,196
|
|
|
|
1,768
|
|
|
305,964
|
|
Interest receivable
|
|
|
|
|
|
|
1,535
|
|
|
|
|
|
|
1,535
|
|
Life insurance contracts
|
|
|
|
|
|
|
7,368
|
|
|
|
|
|
|
7,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
Demand and savings deposits
|
|
|
|
|
|
|
147,094
|
|
|
|
|
|
|
147,094
|
|
Time deposits
|
|
|
|
|
|
|
197,585
|
|
|
|
|
|
|
197,585
|
|
Long term debt instruments
|
|
|
|
|
|
|
5,826
|
|
|
|
|
|
|
5,826
|
|
Interest payable
|
|
|
|
|
|
|
301
|
|
|
|
|
|
|
301
|
|
|
|
Fair Value Measurements at March 31, 2012 using
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
|
|
|
Significant
|
|
|
|
|
for Identical
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Balance
|
|
Financial Assets:
|
|
Cash and due from banks
|
|
$
|
9,321
|
|
|
|
|
|
|
|
|
|
$
|
9,321
|
|
Interest bearing deposits
|
|
|
2,329
|
|
|
|
|
|
|
|
|
|
|
2,329
|
|
Federal funds sold
|
|
|
11,253
|
|
|
|
|
|
|
|
|
|
|
11,253
|
|
Securities available for sale
|
|
|
|
|
|
|
39,557
|
|
|
|
|
|
|
39,557
|
|
Restricted investments
|
|
|
|
|
|
|
1,741
|
|
|
|
|
|
|
1,741
|
|
Loans, net
|
|
|
|
|
|
|
307,064
|
|
|
|
565
|
|
|
307,629
|
|
Interest receivable
|
|
|
|
|
|
|
1,513
|
|
|
|
|
|
|
1,513
|
|
Life insurance contracts
|
|
|
|
|
|
|
7,300
|
|
|
|
|
|
|
7,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
Demand and savings deposits
|
|
|
|
|
|
|
144,625
|
|
|
|
|
|
|
144,625
|
|
Time deposits
|
|
|
|
|
|
|
201,074
|
|
|
|
|
|
|
201,074
|
|
Long term debt instruments
|
|
|
|
|
|
|
11,667
|
|
|
|
|
|
|
11,667
|
|
Interest payable
|
|
|
|
|
|
|
359
|
|
|
|
|
|
|
359
|
|
NOTE ELEVEN: SUBSEQUENT EVENTS
The Company evaluates subsequent events
that have occurred after the balance sheet, but before the financial statements are issued. There are two types of subsequent events:
(1) recognized, or those that provide additional evidence about conditions that existed at the date of the balance sheet, including
the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence
about conditions that did not exist at the date of the balance sheet but arose after that date.
Based on management’s evaluation
through the date these financial statements were issued, the Company did not identify any recognized or non-recognized subsequent
events that would have required adjustment or disclosure in the consolidated financial statements.
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Introduction
The
following discussion focuses on significant results of the Company’s operations and significant changes in our financial
condition or results of operations for the periods indicated in the discussion. This discussion should be read in conjunction with
the preceding financial statements and related notes, as well as the Company’s Annual Report on Form 10-K for the period
ended December 31, 2011.
Current performance does not guarantee, and may not be indicative of, similar performance in the
future.
Forward
Looking Statements
Certain statements in this report may
constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or
results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words
(and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,”
“anticipate” or other similar words. Although the Company believes that its expectations with respect to certain forward-looking
statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there
can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future
results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends
may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited
to, the effects of and changes in: general economic conditions, the interest rate environment, legislative and regulatory requirements,
competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, technology, downturns
in the trucking, mining, and timber industries, downturns in the housing market affecting manufacturers of household cabinetry
and thus, employment, effects of mergers and/or downsizing in the poultry industry in Hardy County, continued challenges in the
current economic environment affecting our financial condition and results of operations, continued deterioration in the financial
condition of the U.S. banking system impacting the valuations of investments the Company has made in the securities of other financial
institutions, and consumer spending and savings habits, particularly in the current economic environment. Additionally, actual
future results and trends may differ from historical or anticipated results to the extent: (1) any significant downturn in certain
industries, particularly the trucking and timber industries are experienced; (2) loan demand decreases from prior periods; (3)
the Company may make additional loan loss provisions due to negative credit quality trends in the future that may lead to a deterioration
of asset quality; (4) the Company may not continue to experience significant recoveries of previously charged-off loans or loans
resulting in foreclosure; (5) the Company is unable to control costs and expenses as anticipated; (6) legislative and regulatory
changes could increase expenses (including changes as a result of rules and regulations adopted under the Dodd-Frank Wall Street
Reform and Consumer Protection Act); (7) the effects of the recent down grade of U.S. Government Securities by one of the credit
rating agencies could have a material adverse effect on the company’s operations, earnings and financial condition; and (8)
any additional assessments imposed by the FDIC. Additionally, consideration should be given to the cautionary language contained
elsewhere in this Form 10-Q. The Company does not update any forward-looking statements that may be made from time to time by or
on behalf of the Company.
Critical Accounting Policies
The
Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”). The financial statements contained within these statements are, to a significant extent, financial information
that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors
could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving
a liability. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics
of these transactions would be the same, the timing of events that would impact these transactions could change.
Disclosure
of the Company’s significant accounting policies are included in Note Two to the Consolidated Financial Statements of the
Company’s Annual Report on Form 10-K for the period ended December 31, 2011. Some of the policies are particularly sensitive,
requiring significant judgments, estimates and assumptions by management.
Allowance
for Loan Losses
The allowance for loan losses is an estimate
of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC
450,
Contingencies,
which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC
310,
Receivables,
which requires that losses be accrued based on the differences between the value of collateral, present
value of future cash flows or values that are observable in the secondary market and the loan balance.
The allowance consists of specific, general
and unallocated components. The specific component relates to loans that are determined to be impaired. For such loans, an allowance
is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than
the carrying value of that loan.
The general component covers non-impaired
loans and is based on management’s internal risk ratings as well as historical loss experience adjusted for qualitative factors.
The following risk factors relevant to the loan portfolio are reviewed and evaluated:
|
·
|
Changes in lending policies and procedures, including changes in underwriting standards or collection,
charge-off and recovery practices.
|
|
·
|
Changes in national, regional, and local economic and business conditions and developments that
affect the collectability of the portfolio, including unemployment trends and GDP and other leading economic indicators.
|
|
·
|
Changes in the nature and volume of the portfolio.
|
|
·
|
Changes in the experience, ability and depth of lending management and staff.
|
|
·
|
Changes in the volume and severity of past due and classified loans, the volume of nonaccrual loans,
troubled debt restructurings and other loan modifications.
|
|
·
|
Changes in the quality of the Banks’ loan review systems.
|
|
·
|
The existence and effect of any concentrations of credit, and the changes in the level of such
concentrations.
|
|
·
|
Changes in the value of underlying collateral.
|
|
·
|
The effect of other external factors such as competition and legal and regulatory requirements
on the level of estimated credit losses in the existing portfolio.
|
An unallocated component is maintained
to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance
reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and
general losses in the portfolio.
A loan is considered impaired when, based
on current information and events, it is probable that the Company will be unable to collect the scheduled payment of principal
or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of the delay, the borrower’s prior payment
record, and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan
basis for commercial loans by either the present value of expected future cash flows discounted at the loan’s effective interest
rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large
homogeneous loans are determined to be impaired if management feels it is unlikely that the borrower will perform in accordance
with the terms of the original agreement.
Large groups of smaller balance homogeneous
loans are collectively evaluated for impairment. Accordingly, the Banks do not separately identify individual consumer and residential
loans for impairment disclosures, unless the loans are the subject of a restructuring agreement.
Authoritative accounting guidance
does not specify how an institution should identify loans that are to be evaluated for collectability, nor does it specify
how an institution should determine that a loan is impaired. Each subsidiary of the Company uses its standard loan review
procedures in making those judgments so that allowance estimates are based on a comprehensive analysis of the loan portfolio.
For loans that are individually evaluated and found to be impaired and collaterally dependent, the associated allowance is
based upon the estimated fair value, less costs to sell, of any collateral securing the loan as compared to the existing
balance of the loan as of the date of analysis.
All other loans, including individually
evaluated loans determined not to be impaired, are included in a group of loans that are measured under ASC 450 to provide for
estimated credit losses that have been incurred on groups of loans with similar risk characteristics. The methodology for measuring
estimated credit losses on groups of loans with similar risk characteristics in accordance with ASC 450 is based on each group’s
historical net charge-off rate, adjusted for the effects of the qualitative or environmental factors that are likely to cause estimated
credit losses as of the evaluation date to differ from the group’s historical loss experience.
Intangible
Assets
The Company carries intangible assets
related to the purchase of two banks. Amounts paid to purchase these banks were allocated as intangible assets. Generally accepted
accounting principles were applied to allocate the intangible components of the purchases. The excess was allocated between identifiable
intangibles (core deposit intangibles) and unidentified intangibles (goodwill). Goodwill is required to be evaluated for impairment
on an annual basis, and the value of the goodwill adjusted accordingly, should impairment be found. As of December 31, 2011, the
Company did not identify an impairment of this intangible. In addition to the intangible assets associated with the purchases of
banks, the company also carries intangible assets relating to the purchase of naming rights to certain features of a performing
arts center in Petersburg, WV. Intangible assets other than goodwill, which are determined to have finite lives, are amortized
based upon the estimated economic benefits received.
Post Retirement
Benefits and Life Insurance Investments
The Company has invested in and owns life
insurance policies on key officers. The policies are designed so that the Company recovers the interest expenses associated with
carrying the policies and the officer will, at the time of retirement, receive any earnings in excess of the amounts earned by
the Company. The Company recognizes as an asset the net amount that could be realized under the insurance contract as of the balance
sheet date. This amount represents the cash surrender value of the policies less applicable surrender charges. The portion of the
benefits, which will be received by the executives at the time of their retirement, is considered, when taken collectively, to
constitute a retirement plan. Therefore the Company accounts for these policies using guidance found in ASC 715,
Compensation
–Retirement Benefits
. ASC 715 requires that an employer’s obligation under a deferred compensation agreement be
accrued over the expected service life of the employee through their normal retirement date.
Assumptions
are used in estimating the present value of amounts due officers after their normal retirement date. These assumptions include
the estimated income to be derived from the investments and an estimate of the Company’s cost of funds in these future periods.
In addition, the discount rate used in the present value calculation will change in future years based on market conditions.
Recent Accounting Pronouncements
In April 2011, the FASB issued ASU 2011-03,
“Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements.” The amendments
in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase
or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral
maintenance implementation guidance related to that criterion. The amendments in this ASU are effective for the first interim or
annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications
of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of the new guidance
did not have a material impact on the Company’s consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04,
“Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and IFRSs.” This ASU is the result of joint efforts by the FASB and International Accounting Standards Board
(IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide
about fair value measurements. The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic
820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial
Reporting Standards (IFRS). The amendments are effective for interim and annual periods beginning after December 15, 2011 with
prospective application. Early application is not permitted. The Company has included the required disclosures in its consolidated
financial statements.
In June 2011, the FASB issued ASU 2011-05,
“Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.” The objective of this ASU is to improve
the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other
comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of
changes in stockholders’ equity. The amendments require that all non-owner changes in stockholders’ equity be presented
either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The single statement
of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive
income, a total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first
statement should present total net income and its components followed consecutively by a second statement that should present all
the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The
amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components
of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting
of earnings per share. The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years
and interim periods within those years beginning after December 15, 2011. Early adoption is permitted because compliance with the
amendments is already permitted. The amendments do not require transition disclosures. The Company has included the required disclosures
in its consolidated financial statements.
In September 2011, the FASB issued ASU
2011-08, “Intangible – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment.” The
amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more
likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it
is necessary to perform the two-step goodwill test described in Topic 350. The more-likely-than-not threshold is defined
as having a likelihood of more than 50 percent. Under the amendments in this ASU, an entity is not required to calculate
the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than
its carrying amount. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed
for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment
tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or
interim period have not yet been issued. The adoption of the new guidance did not have a material impact on the Company’s
consolidated financial statements.
In December 2011, the FASB issued ASU
2011-11, “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities.” This ASU requires
entities to disclose both gross information and net information about both instruments and transactions eligible for offset in
the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is
required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within
those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative
periods presented. The Company does not expect the adoption of ASU 2011-11 to have a material impact on its consolidated financial
statements.
In December 2011, the FASB issued ASU
2011-12, “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” The amendments are being
made to allow the Board time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications
out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.
While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and
the needs of financial statement users for additional information about reclassification adjustments, entities should continue
to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect
before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report
comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements.
Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December
15, 2011. The Company has included the required disclosures in its consolidated financial statements.
Overview of First Three Months Results
Net income for the first three months
of 2012, as compared to the same period in 2011, increased 26.3%. The increased income was primarily the result of the decreases
in interest and non-interest related expenses more than offsetting the decrease in interest income.
Total assets decreased 1.85% from December
31, 2011 to March 31, 2012 which was the result of paying off long-term debt. Average balances of earning assets and interest bearing
liabilities, for the first three months of 2012, decreased 3.3% and 3.4%, respectively, compared to the same period in 2011. Interest
income on earning assets decreased 4.8%, on a fully tax equivalent basis, which was more than offset by the decrease in interest
expense on interest bearing liabilities of 30.9%.
The Company’s allowance for loan
losses decreased to 1.88% of total gross loans at March 31, 2012 as compared to 1.95% at December 31, 2011.
Non-interest income increased $6,000 in
the first three months of 2012 as compared to the same period in 2011.
Non-interest expenses were the same in
the first three months of 2012 as compared to the same period in 2011.
Performance Measures
The following table compares selected commonly used measures
of bank performance for the three month periods ended March 31, 2012 and 2011:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Annualized return on average assets
|
|
|
0.69
|
%
|
|
|
0.55
|
%
|
Annualized return on average equity
|
|
|
6.83
|
%
|
|
|
5.44
|
%
|
Net interest margin (1)
|
|
|
4.70
|
%
|
|
|
4.39
|
%
|
Efficiency Ratio 2)
|
|
|
66.85
|
%
|
|
|
69.08
|
%
|
Earnings per share (3)
|
|
$
|
0.52
|
|
|
$
|
0.41
|
|
|
(1)
|
On a fully taxable equivalent basis and including loan origination fees.
|
|
(2)
|
Non-interest expenses for the period indicated divided by the sum of net interest income and non-interest income for the period
indicated.
|
|
(3)
|
Per weighted average shares of common stock outstanding for the period indicated.
|
Securities Portfolio
The
Company's securities portfolio serves several purposes. Portions of the portfolio are used to secure certain public and trust deposits.
The remaining portfolio is held as investments or used to assist the Company in liquidity and asset liability management. Total
securities, including restricted securities, represented 10.3% of total assets and 96.3% of total shareholders’ equity at
March 31, 2012.
The
securities portfolio typically will consist of three components: securities held to maturity, securities available for sale and
restricted securities. Securities are classified as held to maturity when management has the intent and the Company has the ability
at the time of purchase to hold the securities to maturity. Held to maturity securities are carried at cost, adjusted for amortization
of premiums and accretion of discounts. Securities to be held for indefinite periods of time are classified as available for sale
and accounted for at market value. Securities available for sale include securities that may be sold in response to changes in
market interest rates, changes in the security's prepayment risk, increases in loan demand, general liquidity needs and other similar
factors. Restricted securities are those investments purchased as a requirement of membership in certain governmental lending institutions
and cannot be transferred without the issuer’s permission. The Company's purchases of securities have generally been limited
to securities of high credit quality with short to medium term maturities.
The
Company identifies at the time of acquisition those securities that are available for sale. These securities are valued at their
market value with any difference in market value and amortized cost shown as an adjustment in stockholders' equity. Changes in
market values of securities which are considered temporary changes due to changes in the market rate of interest are reflected
as changes in other comprehensive income, net of the deferred tax effect. Any changes in market values of securities deemed by
management to be attributable to reasons other than changes in market rates of interest would be recorded through results of operations.
As of March 31, 2012, management determined that all securities with fair values less than the amortized cost, are related to
increases in the current interest rates for similar issues of securities, and that no other than temporary impairment for any
securities in the portfolio exists because of downgrades of the securities or as a result of a change in the financial condition
of any of the issuers. A summary of the length of time of unrealized losses for all securities held at March 31, 2012 can be found
in Note Five to the financial statements. Management reviews all securities with unrealized losses, and all securities in the
portfolio on a regular basis to determine whether the potential for other than temporary impairment exists.
Loan Portfolio
The
Company is an active residential mortgage and construction lender and generally extends commercial loans to small and medium sized
businesses within its primary service area. The Company's commercial lending activity extends across its primary service areas
of Grant, Hardy, Hampshire, Mineral, Randolph, Tucker, and northern Pendleton counties in West Virginia, Frederick County, Virginia
and Garrett County, Maryland. Consistent with its focus on providing community-based financial services, the Company does not attempt
to diversify its loan portfolio geographically by making significant amounts of loans to borrowers outside of its primary service
area.
Credit Quality and Allowance for Loan Losses
Non-performing loans decreased 10.7% from
December 31, 2011 to March 31, 2012 due to a $773,000 decrease in non-accrual loans and a $139,000 decrease in loans 90 days or
more past due. Non-accrual loans have decreased as a result of foreclosures as well as improved performance by borrowers facilitating
their removal from non-accrual status. Non-performing loans represented as a percentage of total loans decreased to 2.46% during
the first three months of 2012, as compared to 2.73% of total loans at December 31, 2011, due to the decrease in non-accrual loans
mentioned above. The allowance for loan losses as a percentage of total loans decreased from the December 31, 2011 level of 1.95%
to 1.88%. As noted in Note Two to the unaudited consolidated financial statements, the carrying value of impaired loans increased
from $29.2 million at December 31, 2011 to $32.1 million at March 31, 2012.
Each of the Company’s banking subsidiaries
determines the adequacy of its allowance for loan losses independently using the same allowance for loan loss methodology. The
allowance is calculated quarterly and adjusted prior to the issuance of the quarterly financial statements. All loan losses charged
to the allowance are approved by the boards of directors of each bank at their regular meetings. The allowance is reviewed for
adequacy after considering historical loss rates, current economic conditions (both locally and nationally) and any known credit
problems that have not been considered elsewhere in the calculation. Although the loan portfolios of the two banks are similar
to each other, some differences exist which result in divergent risk patterns and different historical charge-off rates amongst
the functional areas of the banks’ loan portfolios. Each bank pays particular attention to the individual loan performance,
collateral values, borrower financial condition and economic conditions. A committee, with representatives from both subsidiary
banks, meets to discuss the overall economic conditions that impact both subsidiary banks in the same fashion.
The determination of an adequate allowance
at each bank is done in a two step process. The first step is to identify impaired loans. Impaired loans are problem loans above
a certain threshold which are not expected to perform in accordance with the original loan agreement. A loan is considered impaired
when, based on current information and events, it is probable that the Banks will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on
a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral
dependent.
Large groups of smaller balance homogeneous
loans are collectively evaluated for impairment. Accordingly, the Banks do not separately identify individual consumer and residential
loans for impairment disclosures, unless the loans are the subject of a restructuring agreement.
The second step is to allocate losses
to non-impaired loans based on historical loss rates of loans, by category, and considering the potential impact of other qualitative
factors on future loan performance.
The following table illustrates certain
ratios related to quality of the Company’s loan portfolio:
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
Allowance for loan losses as a percentage of gross loans
|
|
|
1.88
|
%
|
|
|
1.95
|
%
|
Non-performing loans as a percentage of gross loans
|
|
|
2.46
|
%
|
|
|
2.73
|
%
|
Ratio of allowance for loan losses to non-performing loans
|
|
|
0.77
|
|
|
|
0.71
|
|
Non-performing loans include non-accrual
loans and loans 90 days or more past due (including non-performing restructured loans). Non-accrual loans are loans on which interest
accruals have been suspended. Loans are typically placed on non-accrual status once they have reached certain delinquency status,
depending on loan type, and it is no longer reasonable to expect collection of principal and interest because collateral is insufficient
to cover both the principal and interest due. After loans are placed on non-accrual status, they are returned to accrual status
if the obligation is brought current by the borrower, or they are charged off if payment is not made.
The following table summarizes the Company’s
non-performing loans, restructured loans accruing interest and other real estate owned at March 31, 2012 and December 31, 2011
(in thousands of dollars):
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
Loans on non-accrual status
|
|
$
|
7,248
|
|
|
$
|
8,021
|
|
Loans delinquent 90 days or more still accruing
|
|
$
|
397
|
|
|
$
|
536
|
|
Total non-performing loans
|
|
$
|
7,645
|
|
|
$
|
8,557
|
|
|
|
|
|
|
|
|
|
|
Restructured loans still accruing
|
|
$
|
17,511
|
|
|
$
|
13,055
|
|
Other real estate owned (OREO)
|
|
$
|
7,987
|
|
|
$
|
7,070
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans and other risk assets
|
|
$
|
33,143
|
|
|
$
|
28,682
|
|
|
|
|
|
|
|
|
|
|
Restructured loans are loans on which
the original interest rate or repayment terms have been changed, or were loan balloon renewals included in restructured loans due
to financial hardship of the borrower. Restructured loans that are performing in accordance with modified terms are $16,204,000
and $11,233,000 at March 31, 2012 and December 31, 2011, respectively. Restructured loans not performing in accordance with modified
terms totaled $2,202,000 as of March 31, 2012 and $2,919,000 at December 31, 2011. All restructured loans are included in impaired
loans in Note Two. The increase in restructured loans is the result of including loan balloon renewal agreements in accordance
with the new guidelines adopted with ASU 2011-02.
The following table summarizes the Company’s net charge-offs by loan type for the three month periods
ended March 31, 2012 and 2011 (in thousands of dollars):
|
|
2012
|
|
|
2011
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
$
|
(305
|
)
|
|
$
|
(31
|
)
|
Commercial Other
|
|
|
(245
|
)
|
|
|
0
|
|
Consumer Mortgage
|
|
|
(292
|
)
|
|
|
(307
|
)
|
Consumer Other
|
|
|
(51
|
)
|
|
|
(122
|
)
|
Total Charge-offs
|
|
$
|
(893
|
)
|
|
$
|
(460
|
)
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
$
|
—
|
|
|
$
|
106
|
|
Commercial Other
|
|
|
13
|
|
|
|
21
|
|
Consumer Mortgage
|
|
|
0
|
|
|
|
10
|
|
Consumer Other
|
|
|
108
|
|
|
|
60
|
|
Total Recoveries
|
|
$
|
121
|
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
Total Net Charge-offs
|
|
$
|
(772
|
)
|
|
$
|
(263
|
)
|
Charge-offs increased 94.1% the first
three months of 2012 compared to the same period during 2011. This increase was driven by a charge-off sustained as a result of
one commercial relationship as well as foreclosures.
Management believes that the allowance
is to be taken as a whole, and the allocation between loan types is an estimation of potential losses within each type given information
known at the time. The following table shows the allocation for loans in the loan portfolio and the corresponding amounts of the
allowance allocated by loan type as of March 31, 2012 and December 31, 2011 (in thousands of dollars):
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Amount
|
|
|
Percent
of Loans
|
|
|
Amount
|
|
|
Percent
of Loans
|
|
Loan Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage
|
|
$
|
2,824
|
|
|
|
45
|
%
|
|
$
|
2,898
|
|
|
|
45
|
%
|
Commercial Other
|
|
|
387
|
|
|
|
4
|
%
|
|
|
465
|
|
|
|
4
|
%
|
Consumer Mortgage
|
|
|
1,857
|
|
|
|
44
|
%
|
|
|
1,959
|
|
|
|
43
|
%
|
Consumer Other
|
|
|
425
|
|
|
|
7
|
%
|
|
|
428
|
|
|
|
8
|
%
|
Unallocated
|
|
|
361
|
|
|
|
0
|
%
|
|
|
361
|
|
|
|
0
|
%
|
Totals
|
|
$
|
5,854
|
|
|
|
100
|
%
|
|
$
|
6,111
|
|
|
|
100
|
%
|
Because
of its large impact on the local economy, management continues to monitor the economic health of the poultry industry. The Company
has direct loans to poultry growers and the industry is a large employer in the Company’s trade area. In addition, multiple
manufacturers of household cabinetry are large employers in the Company’s primary trade area. Due to the downturn in the
housing market nationally, there have been indications that the demand for cabinetry has decreased, impacting the performance of
these manufacturers and resulting in one manufacturer’s plant closure. Because of the impact on the local economy, management
monitors the performance of this industry as it relates to local employment trends. Additionally, the Company’s loan portfolio
contains a segment of loans collateralized by heavy equipment, particularly in the trucking, mining and timber industries. Because
of the impact of the slowing economic conditions on the housing market, the timber sector has experienced a recent downturn. The
Company has experienced losses related to the downturn in this industry.
Net
Interest Income
The
Company’s net interest income, on a fully taxable equivalent basis increased $136,000 during the first three months of 2012
as compared to the same period in 2011, as a result of t
he changes in average rates earned on assets and paid on interest
bearing liabilities and the changes in the relative mix of earning assets and interest bearing liabilities.
For the three month period ended March
31, 2012, the Company’s average earning assets decreased 3.3% compared to the same period in 2011 while average interest
bearing liabilities, comparing the same periods decreased 3.4%. The average balances of time deposits and long-term debt, both
comparatively more expensive interest bearing liabilities, decreased 6.9%. These changes in the relative mix of earning assets
and interest bearing liabilities and the change in the average yields largely offset, resulting in the change in the Company’s
net interest income.
The Company believes that its deposits
will be sufficient to fund the current and expected loan demand. Should the loan demand increase beyond the Company’s
current expectations, the Company may be required to fund these loans with borrowings which could result in a reduction of net
interest margin. However, management believes total net interest income would not be adversely affected.
Also, balances of non-performing loans
and other real estate acquired through foreclosure have increased from December 31, 2011 to March 31, 2012. The increase in other
real estate acquired through foreclosure has an adverse effect on net interest income. Should balances of other real estate acquired
through foreclosure continue to increase, net interest margin may decrease accordingly.
The table below illustrates the effects
on net interest income, on a fully taxable equivalent basis, for the first three months of 2012 compared to the same period in
2011, of changes in average volumes of interest bearing liabilities and earning assets from 2011 to 2012 and changes in average
rates on interest bearing liabilities and earning assets from 2011 to 2012 (in thousands of dollars):
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
|
|
Increase (Decrease) Three Months Ended March 31, 2012 compared to Three Months Ended March 31, 2011
|
|
|
|
Due to change in:
|
|
|
|
Average Volume
|
|
|
Average Rate
|
|
|
Total Change
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(345
|
)
|
|
$
|
71
|
|
|
($
|
274
|
)
|
Taxable investment securities
|
|
|
50
|
|
|
|
(27
|
)
|
|
|
23
|
|
Nontaxable investment securities
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
(4
|
)
|
Interest bearing deposits
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Federal funds sold
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
(1
|
)
|
Total Interest Income
|
|
|
(301
|
)
|
|
|
45
|
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Savings deposits
|
|
|
1
|
|
|
|
(12
|
)
|
|
|
(11
|
)
|
Time deposits
|
|
|
(48
|
)
|
|
|
(304
|
)
|
|
|
(352
|
)
|
Borrowings
|
|
|
(33
|
)
|
|
|
6
|
|
|
|
(27
|
)
|
Total Interest Expense
|
|
|
(80
|
)
|
|
|
(312
|
)
|
|
|
(392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
(221
|
)
|
|
$
|
357
|
|
|
$
|
136
|
|
The table below sets forth an analysis
of net interest income for the three month periods ended March 31, 2012 and 2011 (Average balances and interest/expense shown in
thousands of dollars):
|
|
2012
|
|
|
2011
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
|
Balance (2)
|
|
|
Expense
|
|
|
Rate (1)
|
|
|
Balance (2)
|
|
|
Expense
|
|
|
Rate (1)
|
|
Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (3)
|
|
$
|
305,988
|
|
|
$
|
4,882
|
(4)
|
|
|
6.38
|
%
|
|
$
|
327,633
|
|
|
$
|
5,156
|
(4)
|
|
|
6.29
|
%
|
Taxable investment securities
|
|
|
37,523
|
|
|
|
149
|
|
|
|
1.59
|
%
|
|
|
24,863
|
|
|
|
126
|
|
|
|
2.03
|
%
|
Non-taxable investment securities
|
|
|
1,576
|
|
|
|
15
|
|
|
|
3.81
|
%
|
|
|
2,148
|
|
|
|
19
|
|
|
|
3.54
|
%
|
Interest bearing deposits
|
|
|
2,802
|
|
|
|
1
|
|
|
|
0.14
|
%
|
|
|
3,988
|
|
|
|
1
|
|
|
|
0.10
|
%
|
Federal funds sold
|
|
|
7,278
|
|
|
|
3
|
|
|
|
0.16
|
%
|
|
|
8,792
|
|
|
|
4
|
|
|
|
0.18
|
%
|
Total Earning Assets
|
|
$
|
355,167
|
|
|
$
|
5,050
|
|
|
|
5.69
|
%
|
|
$
|
367,424
|
|
|
$
|
5,306
|
|
|
|
5.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(6,130
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,574
|
)
|
|
|
|
|
|
|
|
|
Other non-earning assets
|
|
|
56,471
|
|
|
|
|
|
|
|
|
|
|
|
41,506
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
405,508
|
|
|
|
|
|
|
|
|
|
|
$
|
403,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
25,422
|
|
|
$
|
5
|
|
|
|
0.08
|
%
|
|
$
|
23,062
|
|
|
$
|
7
|
|
|
|
0.13
|
%
|
Savings deposits
|
|
|
56,981
|
|
|
|
23
|
|
|
|
0.16
|
%
|
|
|
54,253
|
|
|
|
34
|
|
|
|
0.25
|
%
|
Time deposits
|
|
|
198,458
|
|
|
|
768
|
|
|
|
1.55
|
%
|
|
|
210,987
|
|
|
|
1,120
|
|
|
|
2.12
|
%
|
Long-term debt
|
|
|
6,640
|
|
|
|
81
|
|
|
|
4.88
|
%
|
|
|
9,335
|
|
|
|
108
|
|
|
|
4.63
|
%
|
Total Interest Bearing Liabilities
|
|
$
|
287,501
|
|
|
$
|
877
|
|
|
|
1.22
|
%
|
|
$
|
297,637
|
|
|
$
|
1,269
|
|
|
|
1.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
60,922
|
|
|
|
|
|
|
|
|
|
|
|
56,872
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
16,288
|
|
|
|
|
|
|
|
|
|
|
|
8,251
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
40,797
|
|
|
|
|
|
|
|
|
|
|
|
40,596
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
405,508
|
|
|
|
|
|
|
|
|
|
|
$
|
403,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
|
|
|
$
|
4,173
|
|
|
|
|
|
|
|
|
|
|
$
|
4,037
|
|
|
|
|
|
Net Interest Margin
|
|
|
|
|
|
|
|
|
|
|
4.70
|
%
|
|
|
|
|
|
|
|
|
|
|
4.39
|
%
|
Notes:
|
|
|
|
(1) Yields are computed on a taxable equivalent basis using a 30% tax rate
|
(2) Average balances are based upon daily balances
|
(3) Includes loans in non-accrual status
|
(4) Income on loans includes fees
|
|
|
|
Provision for Loan Losses
Provision for loan losses decreased $70,000
or 12.0% for the first three months of 2012 compared to the same period during 2011. Management believes the current level of the
allowance for loan losses represents a fair assessment of the losses inherent in the loan portfolio.
Non-interest
Income
Non-interest income increased $6,000 in
the first three months of 2012 as compared to the same period in 2011.
Service
charges on deposit accounts decreased 5.5%. The largest portion of these charges is non-sufficient funds fees on non-interest bearing
transaction accounts.
Life
insurance investment income increased 3.0% during the first three months of 2012 compared to the same period in 2011.
Other
non-interest income increased $22,000 or 26.5% during the first three months of 2012 compared to the same period in 2011. This
increase is the result of insurance settlement payments received due to claims relating to non-bank debit card fraud.
Non-interest
Expense
Non-interest expenses were basically the
same for the first three months of 2012 as compared to the same period in 2011.
Changes in salary and benefits expense
The following table compares the components
of salary and benefits expense for the three month periods ended March 31, 2012 and 2011 (in thousands of dollars):
Salary and Benefits Expense
|
|
|
2012
|
|
|
2011
|
|
|
Increase
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
Employee salaries
|
|
$
|
1,128
|
|
|
$
|
1,112
|
|
|
$
|
16
|
|
Employee benefit insurance
|
|
|
302
|
|
|
|
320
|
|
|
|
(18
|
)
|
Payroll taxes
|
|
|
104
|
|
|
|
70
|
|
|
|
34
|
|
Deferred loan origination costs
|
|
|
(12
|
)
|
|
|
(47
|
)
|
|
|
35
|
|
Non-recurring post retirement adjustment
|
|
|
0
|
|
|
|
(70
|
)
|
|
|
70
|
|
Post retirement plans
|
|
|
182
|
|
|
|
230
|
|
|
|
(48
|
)
|
Total
|
|
$
|
1,704
|
|
|
$
|
1,615
|
|
|
$
|
89
|
|
The increase of 5.5% in employee related
cost for the first three months of 2012 compared to the same period during 2011 is the result of the implementation of the Financial
Accounting Standard ASC 310-20 Nonrefundable Fees and Other Costs, the non-recurring post retirement adjustment made during the
first three months of 2011, somewhat offset by reductions in post retirement expenses. The Company began deferral of costs associated
with loan origination at the beginning of 2011, upon determination that its impact was becoming material, and is amortizing the
cost over the life of the loan.
Changes in data processing expense
Data processing expense increased $11,000
or 3.7% for the first three months of 2012 compared to the same period in 2011. The increase was driven by additional services
provided by the Company’s core system vendor during 2012.
Changes in occupancy and equipment
expense
The following table illustrates the components of occupancy and equipment expense for the three month periods
ended March 31, 2012 and 2011 (in thousands of dollars):
|
|
2012
|
|
|
2011
|
|
|
Increase
(
Decrease)
|
|
Depreciation of buildings and equipment
|
|
$
|
179
|
|
|
$
|
196
|
|
|
$
|
(17
|
)
|
Maintenance expense on buildings and equipment
|
|
|
82
|
|
|
|
84
|
|
|
|
(2
|
)
|
Utilities expense
|
|
|
41
|
|
|
|
47
|
|
|
|
(6
|
)
|
Real estate and personal property tax
|
|
|
23
|
|
|
|
29
|
|
|
|
(6
|
)
|
Other expense related to occupancy and equipment
|
|
|
24
|
|
|
|
25
|
|
|
|
(1
|
)
|
Total occupancy and equipment expense
|
|
$
|
349
|
|
|
$
|
381
|
|
|
$
|
(32
|
)
|
The decreases in occupancy and equipment
expenses during the first three months of 2012 are primarily related to the decrease in depreciation expense.
Changes in miscellaneous non-interest
expense
Director fees decreased in the first three
months of 2012 compared to the same period during 2011 by $15,000 or 14.9% from $101,000 during 2011 to $86,000 during 2012 driven
by a reduction in the number of board members and fees paid per meeting.
Legal and professional fees decreased
in the first three months of 2012 compared to the same period during 2011 by $2,000 or 1.6% from $124,000 during 2011 to $122,000
during 2012.
Office supplies, postage and freight expenses
decreased in the first three months of 2012 compared to the same period during 2011 by $21,000 or 22.8% from $92,000 during 2011
to $71,000 during 2012 largely driven by the reduction of courier services between branches and savings related to on-line statement
program implemented at one of the Company’s subsidiary banks.
FDIC premium expense decreased in the
first three months of 2012 compared to the same period during 2011 by $60,000 or 36.1% from $166,000 during 2011 to $106,000 during
2012 driven by rate changes.
Loan and foreclosed asset expenses increased
48.8% or $59,000 during the first three months of 2012 compared to the same period in 2011 due to expenses related to obtaining
updated appraisals as well as valuation adjustment driven by the declined appraised value of some foreclosed properties.
Other non-interest expense decreased $30,000
or 13.5% during the first three months of 2012 compared to the same period in 2011.
The table below illustrates components
of other non-interest expense for the three month periods ended March 31, 2012 and 2011 (in thousands of dollars). Significant
individual components of other non-interest expense are itemized.
|
|
2012
|
|
|
2011
|
|
|
Increase
(Decrease)
|
|
ATM expense
|
|
|
(28
|
)
|
|
|
(25
|
)
|
|
|
(3
|
)
|
Amortization of intangible assets
|
|
|
47
|
|
|
|
46
|
|
|
|
1
|
|
Advertising and marketing expense
|
|
|
37
|
|
|
|
34
|
|
|
|
3
|
|
Miscellaneous components of other non interest expense
|
|
|
136
|
|
|
|
167
|
|
|
|
(31
|
)
|
Total
|
|
$
|
192
|
|
|
$
|
222
|
|
|
$
|
(30
|
)
|
Provision
for taxes
The
provision for taxes has increased $70,000 for the first three months of 2012 compared to the same period in 2011 as a result of
the 26.3% increase in income before provision for income taxes.
Borrowed
Funds
The
Company borrows funds from the Federal Home Loan Bank (“FHLB”) to reduce market rate risks or to provide operating
liquidity. Management typically will initiate these borrowings in response to a specific need for managing market risks or for
a specific liquidity need and will attempt to match features of these borrowings to best suit the specific need. Therefore, the
borrowings on the Company’s balance sheet as of March 31, 2012 and throughout the periods ended March 31, 2012 and December
31, 2011 have varying features of amortization or single payment with periodic, regular interest payments and also have interest
rates which vary based on the terms and on the features of the specific borrowing.
Liquidity
Operating
liquidity is the ability to meet present and future financial obligations. Short term liquidity is provided primarily through cash
balances, deposits with other financial institutions, federal funds sold, non-pledged securities and loans maturing within one
year. Additional sources of liquidity available to the Company include, but are not limited to, loan repayments, the ability to
obtain deposits through the adjustment of interest rates and the purchasing of federal funds. To further meet its liquidity needs,
the Company also maintains lines of credit with correspondent financial institutions, the Federal Reserve Bank of Richmond and
the Federal Home Loan Bank of Pittsburgh.
Historically,
the Company’s primary need for additional levels of operational liquidity has been to fund increases in loan balances.
The
Company has normally funded increases in loans by increasing deposits and with decreases in liquid assets such as balances of federal
funds sold and balances of securities. The Company also utilizes existing borrowing facilities for additional levels of operating
liquidity. In choosing which sources of operating liquidity to utilize, management evaluates the implications of each liquidity
source and its impact on profitability, balance sheet stability and potential future liquidity needs.
The parent Company’s operating funds,
funds with which to pay shareholder dividends and funds for the exploration of new business ventures have been supplied primarily
through dividends paid by the Company’s subsidiary banks Capon Valley Bank (CVB) and The Grant County Bank (GCB). The various
regulatory authorities impose restrictions on dividends paid by a state bank. A state bank cannot pay dividends without the consent
of the relevant banking authorities in excess of the total net profits of the current year and the combined retained profits of
the previous two years. As of March 31, 2012, the subsidiary banks could pay dividends to Highlands Bankshares, Inc. of approximately
$2,391,000 without permission of the regulatory authorities.
Capital
The
Company seeks to maintain a strong capital base to expand facilities, promote public confidence, support current operations and
grow at a manageable level. As of March 31, 2012, the Company was above the regulatory minimum levels of capital. The table below
summarizes the capital ratios for the Company and its subsidiary banks as of March 31, 2012 and December 31, 2011:
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Actual
|
|
|
Regulatory
|
|
|
Actual
|
|
|
Regulatory
|
|
|
|
Ratio
|
|
|
Minimum
|
|
|
Ratio
|
|
|
Minimum
|
|
Total Risk Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highlands Bankshares
|
|
|
15.61
|
%
|
|
|
8.00
|
%
|
|
|
15.17
|
%
|
|
|
8.00
|
%
|
Capon Valley Bank
|
|
|
13.38
|
%
|
|
|
8.00
|
%
|
|
|
13.16
|
%
|
|
|
8.00
|
%
|
The Grant County Bank
|
|
|
15.68
|
%
|
|
|
8.00
|
%
|
|
|
15.31
|
%
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Leverage Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highlands Bankshares
|
|
|
10.41
|
%
|
|
|
4.00
|
%
|
|
|
10.22
|
%
|
|
|
4.00
|
%
|
Capon Valley Bank
|
|
|
8.73
|
%
|
|
|
4.00
|
%
|
|
|
8.50
|
%
|
|
|
4.00
|
%
|
The Grant County Bank
|
|
|
11.01
|
%
|
|
|
4.00
|
%
|
|
|
10.55
|
%
|
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highlands Bankshares
|
|
|
14.35
|
%
|
|
|
4.00
|
%
|
|
|
13.91
|
%
|
|
|
4.00
|
%
|
Capon Valley Bank
|
|
|
12.12
|
%
|
|
|
4.00
|
%
|
|
|
11.90
|
%
|
|
|
4.00
|
%
|
The Grant County Bank
|
|
|
14.43
|
%
|
|
|
4.00
|
%
|
|
|
14.06
|
%
|
|
|
4.00
|
%
|
Effects
of Inflation
Inflation
primarily affects industries having high levels of property, plant and equipment or inventories. Although the Company is not significantly
affected in these areas, inflation does have an impact on the growth of assets. As assets grow rapidly, it becomes necessary to
increase equity capital at proportionate levels to maintain the appropriate equity to asset ratios. Traditionally, the Company's
earnings and high capital retention levels have enabled the Company to meet these needs.
The Company's reported earnings
results have been minimally affected by inflation. The different types of income and expense are affected in various ways. Interest
rates are affected by inflation, but the timing and magnitude of the changes may not coincide with changes in the consumer price
index. Management actively monitors interest rate sensitivity in order to minimize the effects of inflationary trends on interest
rates. Other areas of non-interest expenses may be more directly affected by inflation.
Legislative
Developments
Dodd-Frank
Wall Street Reform and Consumer Protection Act
On
July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”).
The Act will result in sweeping financial regulatory reform aimed at strengthening the nation’s financial services sector.
The
Act’s provisions that have received the most public attention generally have been those applying to larger institutions or
institutions that engage in practices in which we do not engage. These provisions include growth restrictions, credit exposure
limits, higher prudential standards, prohibitions on proprietary trading, and prohibitions on sponsoring and investing in hedge
funds and private equity funds.
However,
the Act contains numerous other provisions that likely will directly impact us and our banking subsidiaries. These include increased
fees payable by banks to regulatory agencies, new capital guidelines for banks and bank holding companies, permanently increasing
the FDIC insurance coverage from $100,000 to $250,000 per depositor, new liquidation procedures for banks, new regulations affecting
consumer financial products, new corporate governance disclosures and requirements, and the increased cost of supervision and compliance
more generally. Many aspects of the law are subject to rulemaking by various government agencies and will take effect over several
years. This time table, combined with the Act’s significant deference to future rulemaking by various regulatory agencies,
makes it difficult for us to anticipate the Act’s overall financial, competitive and regulatory impact on us, our customers,
and the financial industry more generally.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
The Company’s management, with the
participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures as of March 31, 2012. Based on this evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of March
31, 2012. The Company has established procedures undertaken during the normal course of business in an effort to reasonably ensure
that fraudulent activity of either an amount material to these results or in any amount is not occurring.
Changes in Internal Controls
During the period reported upon, there
were no significant changes in internal controls of Highlands Bankshares, Inc. pertaining to its financial reporting and control
of its assets or in other factors that materially affected or are reasonably likely to materially affect such control.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Management
is not aware of any material pending or threatened litigation in which the Company or its subsidiaries may be involved as a defendant.
In the normal course of business, the banks periodically must initiate suits against borrowers as a final course of action in collecting
past due loans. In addition, to management’s knowledge, no governmental authorities have initiated or contemplated legal
action against the Company.
Item 1A. Risk Factors
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits
EXHIBIT INDEX
|
Exhibit
Number
|
Description
|
3(i)
|
Articles of Incorporation of Highlands Bankshares, Inc., as restated, are hereby incorporated by reference to Exhibit 3(i) to Highlands Bankshares Inc.’s Form 10-Q filed November 13, 2007.
|
3(ii)
|
Amended Bylaws of Highlands Bankshares, Inc. are incorporated by reference to Exhibit 3(ii) to Highlands Bankshares Inc.’s Report on Form 8-K filed January 9, 2008.
|
31.1
|
Certification
of Chief Executive Officer Pursuant
to section 302 of the Sarbanes-Oxley Act of
2002 Chapter 63, Title 18 USC Section
1350 (A) and (B).
|
31.2
|
Certification
of Chief Financial Officer
Pursuant to section 302 of the Sarbanes-Oxley Act of
2002 Chapter 63, Title 18 USC Section
1350 (A) and (B).
|
32.1
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C. §1350.
|
32.2
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
§1350.
|
101.INS
|
XBRL Instance Document (1)
|
101.SCH
|
XBRL Taxonomy Extension Schema Document (1)
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase (1)
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase (1)
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase (1)
|
101.DEF
|
XBRL Taxonomy Extension Definitions Linkbase (1)
|
|
|
|
|
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
|
HIGHLANDS BANKSHARES, INC.
|
|
|
|
/s/ John G. Van Meter
|
|
John G. Van Meter
|
|
Chairman of the Board, President & Chief Executive Officer
|
|
|
|
/s/ Jeffrey B. Reedy
|
|
Jeffrey B. Reedy
|
|
Chief Financial Officer
|
May 15, 2012
|
|
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